ECB published a research bulletin article, by Johannes Breckenfelder, on whether sovereign risk can affect companies outside the financial sector. The article discusses the channels through which the spillover can occur.
The article concludes that when a country sees its sovereign credit risk rise, companies in that country also see their credit risk increase. Companies with a large public-sector ownership, in addition to the companies that borrow heavily from banks, are most affected. This suggests that the transmission of credit risk from sovereigns to non-financial companies occurs primarily through a fiscal and financial channel.
The results of the investigation also highlight the importance of reducing the likely spillovers of sovereign risk to corporate credit risk, for example, via the Capital Markets Union. With the ambition to further develop market-based sources of finance in Europe, the Capital Markets Union may help contain both the fiscal and the financial channels of risk transmission. This is because it would stimulate non-financial corporations to use more diversified sources of finance, for instance substituting part of the their bank lending by issuing larger amounts in more liquid corporate bond markets. The article concludes that, if companies rely less on bank lending and government support, they should be better protected from serious banking crises and sovereign distress.
Related Link: Research Bulletin Article
Keywords: Europe, EU, Banking, Insurance, Securities, Sovereign Risk, Credit Risk, Capital Markets Union, Market Based Finance, Research, ECB
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EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.
EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.
APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.
EBA published the quarterly risk dashboard, along with the results of the Risk Assessment Questionnaire survey among 60 banks and 15 market analysts.
ECB concluded the public consultation on the introduction of a digital euro in EU.
ECB published a guide that sets out the supervisory approach to consolidation in the banking sector.
The SRB Chair Elke König published an article setting out work priorities for 2021.
FDIC has selected 11 technology companies—including BearingPoint, Fed Reporter, Inc, and S&P Global Market Intelligence, LLC—for inclusion in the third and final phase of the rapid prototyping competition.